Beer, cigarette taxes record steepest drop in five years

That was the first drop in collections from the sale of domestically manufactured excisable products since 2019/20 when the receipts contracted 6.39 percent to Sh55.94 billion when measures to contain the spread of Covid, including the shutdown of bars, were in force.

The taxes are largely charged on goods such as beer, spirits, wine, cigarettes, mineral water, juice, cosmetics, and soda as well as excisable services like airtime, internet, and earnings on loan fees.

Receipts from the production and distribution of beer and cigarettes were the hardest hit in the 12 months ended June 2025, the KRA said.

“The performance is attributed to a decline of revenue remittance from manufacturers of beer and tobacco products by 13.9 percent and 8.9 percent, respectively. KRA continues to enhance compliance measures in the sector,” KRA Commissioner-General Humphrey Wattanga wrote in a press statement Thursday, without disclosing the absolute numbers.

The domestic excise duty collections missed the revised target of Sh71.38 billion by 2.80 percent.

Tax experts also linked falling collections from beer and cigarettes to recent policy shifts by the government from annual raises in ‘sin taxes’ and scrapping of yearly inflation adjustment inflation on specific excise taxes.

“For one, the government has heard the cries of people in the beer and cigarettes industry not to increase the excise rates every year and there has also been no upward adjustment of rates in line with inflation. These have contributed to that fall because the beer manufacturers in this country are few,” Robert Maina, an associate director at consultancy firm EY, said.

“Illicit trade is also still big in this country and that is because once the alcohol becomes expensive, people tend to go for alternatives, and that eats into the duty collected by the KRA.”

The KRA disclosures came on the back of findings by Auditor-General Nancy Gathungu earlier this year that the KRA could not account for 9,686,358 excise stamps in the previous financial year ended June 2024.

"However, no evidence was provided on the type of the stamps lost, when the stamps were lost and investigations on the circumstances leading to their loss," Ms Gathungu wrote in her report to Parliament.

The audit findings have raised fears of non-payment of tax and the sale of fake goods such as alcohol, cigarettes, soft drinks, and cosmetics.

Big firms such as East African Breweries Plc (EABL) and BAT Kenya blamed a thriving illicit trade and shrinking pay slips for hurting growth in sales, which translates to excise duty receipts.

“With the challenging economic conditions, unemployment and underemployment rates and pricing pressure, we have seen growth in demand for illicit (counterfeit, contraband, substandard and unregulated products) and infringement of IP (intellectual property) as consumers seek cheaper options,” EABL, whose shares are publicly traded on the Nairobi Securities Exchange (NSE), wrote in the latest report to shareholders.

BAT Kenya, for its part, said illegal sale of cigarettes accounted for more than a third of the market, blaming increased taxation on the product linked to a high risk of contracting life-threatening diseases such as cancer as well as lung and heart diseases.

The NSE-listed cigarette manufacturer, citing findings of an annual survey conducted by a “third party”, said on February 21 that illicit cigarettes controlled about 37 percent of the market, more than three times 11.3 percent five years earlier, denying the KRA about Sh9 billion annually.

“We implore the government to intensify enforcement efforts locally, and collaborate with relevant agencies of neighboring countries to eradicate the illicit trade menace at source,” BAT Kenya said.

Upon taking power in September 2022, President William Ruto said intelligence reports pointed to rogue KRA staff colluding with unscrupulous traders to print fake stamps and deny the Exchequer billions of shillings annually.

The president said it was unacceptable that Kenya was selling a measly 2.9 billion excise stamps annually compared with Tanzania’s seven billion and Uganda’s nine billion despite the two economies being smaller than Kenya’s.

The excise stamps sold, he said, were less than a third of Kenya’s potential of 10 to 12 billion stamps.

“There are people who are selling the balance, which is approximately seven billion stamps," Dr Ruto said on October 28, 2022.

"I have told the Commissioner-General [Githii Mburu who left office February 2023] he must tell these people to stop and we have no choice because I do not want to fight with people, but they must stop.”

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